Hydro rates dragging down businesses

A local business owner said he is not looking forward to finding out how much his plant’s hydro costs will increase as his company has already seen large rate hikes over the last couple of years.

“Our rates have already gone up over the last two years close to 100%,” said Stephen Wright, president and CEO of George A. Wright and Son on Wednesday from his Hickson Avenue plant.

“Because we’re a larger user of a certain amount of electricity, they charge a global adjustment fee on our bill and it pays for wind farms and solar farms because of that above market average.”

The fee also goes to paying off the debt of the nuclear costs and the costs associated with the cancellation of the gas plants.

On Monday, Ontario Energy minister Bob Chiarelli announced that the Liberal government’s new long-term energy plan will increase an average monthly residential bill from $125 to $178 within five years, a 42% increase.

It’s not known how the increase will affect manufacturers.

Wright doesn’t need to see more hydro rate increases.

“Quite frankly, we’re not happy with it and it creates a problem for Ontario if they ever want to attract the manufacturing base again,” said Wright, in charge of the company since 2002. “Ontario used to have one of the lowest rates in North America; now we’ve got one of the highest. Unless we make a drastic course correction, that is going to affect the number of manufacturers in Ontario, which will ultimately affect homeowners because those rates will have to be borne by someone, so it’ll be higher electrical rates.”

George A. Wright and Son is one of Kingston’s oldest operating companies. It was established in 1894 by his great-grandfather.

The company has been at the Hickson Avenue location since the early 1960s and has undergone five expansions, the most recent in 2010-2011.

The machining and fabrication company has 150 employees with the main plant, another location in Kingston and facilities in Napanee and Scarborough.

Wright warned that property taxes could go up as well because municipalities will need to make up the tax revenue from closed manufacturing plants.

Wright said he hasn’t yet laid off staff or cut down on other expenses because of the higher hydro rates, but he has lost some of his profit margin.

“We haven’t had to do anything to manage it, but it has obviously affected our performance,” he said.

He also doesn’t want to pass the increase onto his customers, some of whom are in the power-generation sector.

“It’s not as simple as raising prices to pass on the increase of the power cost to customers. It’s a very cost-conscious environment right now.”

He said the company has to deal with competition from China, the rest of Asia or the United States.

“There’s no appetite for price increases. We have to eat price increases on steel, so this is something else we have to absorb and reduce margin.”

He added that the higher electricity rates will not only scare off new industry, but current business may not expand or pull up stakes and move.

“Any manufacturer would look at if you’re expanding do you expand in a current (Ontario) location or do you look somewhere else in a different geography if you have higher costs that you can’t control?”

“It’s not from an attraction perspective,” said Garrah. “It’s plants we have here who have sister plants in other places in the world, like in the case of Heinz in Leamington, where you don’t want to be the anomaly, you don’t want to be the high-cost location.

“So it affects us both in the attraction of companies and retaining the companies we have.”

Garrah was supplying information to a company that was considering this area, Georgia or Alabama, and the hydro cost has been a factor.

“They were two to three cents per kilowatt hour and we were over 12 cents,” he said.

“The problem remains the cost when they compare themselves against other jurisdictions. If you’re an industry that’s not using a lot of power, it’s still not great, but it’s not the end of the world, but if you’re a large power consumer it is a challenge.”